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ICYMI – Warnings of turmoil in markets if the US intervenes in the Chinese yuan

The Financial Times ran a piece overnight canvassing potential US intervention to drive the USD down against the Chinese currency.

The background to this is
  • strong, and stronger USD, despite the Fed’s rate cut
  • The US naming China as a currency manipulator
  • USD/CNY and USD/CNH moving above what was though as a bit of a ‘line in the sand’ at 7 (wheter it is is/was or not remains to be seen)
  • Plenty of chatter and speculation that the US admin could intervene to send the dollar lower
Via the FT:
  • One senior staffer at a London-based Chinese bank said the US could conceivably intervene in the offshore renminbi market, where the currency is traded more freely than on the mainland. But the consequences could be serious.
  • “If you take on China on the currency . . . it would be interpreted as a political act and it would throw markets into turmoil,” said the senior staffer, speaking on condition of anonymity. The political fallout would be “unprecedented”, the person added.
He says market turmoil likes that’s a bad thing? πŸ˜€
(Off to the naughty corner for those thinking what I’m thinking!)
FT piece is here, may be gated

CFTC commitment of traders: GBP shorts trimmed modestly. JPY longs increased.

Forex futures positioning data among noncommercial traders for the week ending August 13, 2019

  • EUR short 47K vs 44KΒ short last week.Β Shorts increased by 3K
  • GBP short 96K vs 102K short last week. Shorts decreased by 6K
  • JPY long 25K vs 11K short last week. LongsΒ increased by 14K
  • CHF short 13k vs 16k shortΒ last week. Shorts trimmed by 3K
  • AUD short 63k vs 55k shortΒ last week. Shorts increased by 8K
  • NZD short 13K vs 12K short last week. Shorts increased by 1K
  • CAD long 14K vs 24K long last week.Β  Longs trimmed by 10K

Highlights:

  • JPY and CAD remain long, while the other major currencies maintain short position
  • The JPY longs increased by 14K. That is the largest long position sinceΒ November 2016 (see chart below).
  • CAD longs were trimmed by 10K.
  • GBP shorts were trimmed modestly in the current week to 96K but the position remains the largest speculative position. The GBP movedΒ modestly higher in the week.

JPY longs are the largest since November 2016

Beijing pushes envelope with 7-yuan-to-dollar reference rate

Β China’s central bank set its daily yuan reference rate at 7.0039 to the dollar Thursday, crossing the 7 line for the first time in roughly 11 years and signaling resolve even as the U.S. cries foul over the weakening currency.

Market participants speculate that Beijing may keep pushing the rate to around 7.2 to 7.3 so as to alleviate the impact of the next round of American tariffs.

But while a weaker yuan will help exporters impacted by the drawn-out trade war, the People’s Bank of China still must carefully balance these gains against the risks of runaway devaluation and capital flight.

The yuan can move only 2% in either direction from the daily reference rate on the mainland. So the rate, announced before trading starts each session, reflects the monetary authorities’ wishes.

The authorities want a gradual weakening of the yuan, said Ken Cheung, senior Asian foreign exchange strategist at Mizuho Bank.

The Trump administration just labeled China a currency manipulator Monday, after the yuan weakened past the psychological threshold of 7 in Shanghai. Setting reference rates past that line could trigger further pushback from the U.S. (more…)

CFTC Commitment of Traders: Positions are marginally changed

Forex futures positioning data among noncommercial traders for the week ending July 23, 2019

  • EUR short 39K vs 31KΒ short last week.Β Shorts increased by 8K
  • GBP short 79K vs 76K short last week. Shorts increased by 3K
  • JPY short 9K vs 11K short last week. Short trimmed by 2K
  • CHF short 13k vs 12k shortΒ last week. Shorts increased by 1K
  • AUD short 48 k vs 53k shortΒ last week. Shorts trimmed by 5K
  • NZD short 12K vs 17K short last week. Shorts trimmed by 5K
  • CAD long 31K vs 21K long last week.Β  Longs increased by 10K
  • Prior week

Highlights:

  • GBPΒ shorts remain as the largest position. The GBPUSD moved to new 27 month lows today rewarding those traders.
  • AUD shorts are the 2nd largest position and the AUD moved to new month lows today retracing the run higher from theΒ June 10 low
  • The EUR shorts increased by 8K. The EURUSD moved modestly lower this week. The EUR short has been cut from over -100K short to 31K (the fall in short positions seems to have slowed over the last month.
  • Speculators remain long the CAD. It is the onlyΒ major foreign-currency long position versus the US dollar

Forex futures positioning data among noncommercial traders for the week ending July 23, 2019

USD/JPY climbs to two-week high as yields rise

USD/JPY at the highs of the day

USD/JPY at the highs of the day
If you expect the Fed to follow the ECB, then USD/JPY longs are the place to be.
That’s the brewing signal in USD/JPY as it rises to a two-week high of 108.55. A Fed cut next week is almost a sure thing but a further cut is less certain and either way I don’t see the Fed pre-announcing anything.
Technically, USD/JPY is still in a tough spot but we now have at least one higher low over the past month. It will take a break above 109.00 to spark any kind of real rally but the conditions are there.

EUR/GBP hits fresh six-month high amid weaker pound

Can EUR/GBP firmly hold a break above 0.9000 today?

EUR/GBP D1 16-07

The pair has been knocking on the door of the 0.9000 handle over the past two weeks and is now hitting a fresh six-month high as the pound slips on the day. If buyers can manage a daily break above the 0.9000 handle, I reckon it could keep the rally going for a while more towards the highs seen in December and January.
As for the pound weakness today, I want to argue that it’s largely on the back of sentiment/flows but with key UK data set to be released later on today, this isn’t the first time we’re seeing something like this happen (if you catch my drift).
Let’s see what the labour market report has to offer later today before drawing those conclusions but either way, it hasn’t been a great last ten weeks for the pound against the euro and EUR/GBP bulls don’t look like keeping their horns away just yet.

Deutsche Bank have raised their probability for a ‘no-deal’ Brexit to near 50%

The bank says sterling is not cheap and that GBP can go much lower

DB have raised theΒ probability for a ‘no-deal’ Brexit to 45%.
The bank acknowledges that on long term valuation models (citing PPP and FEER models) GBP is close to fair value, but say political risk is skedded asymmetrically downwards. Short GBP/JPY “remains an excellent expression ” (adding that yen isΒ ranking far cheaper across our suite of trade-based modelsΒ )
Weekly chart below:
The bank says sterling is not cheap and that GBP can go much lower

Week ahead: US earnings, South Africa rates, EC president vote

No summer hours here. Investors are bracing for a busy week as earnings season gets under way in America, in Europe parliament votes for a new president for the European Commission and on both sides of the Atlantic, investors face a deluge of economic data. Here’s what to watch in the coming days. US earnings Banks unofficially kick off second-quarter earnings season on Monday and investors will be tuning in to see whether corporate America is headed for its first earnings recession since 2016. Citigroup starts the earnings party on Monday and JPMorgan Chase, Goldman Sachs and Wells Fargo follow suit on Tuesday. Prospects of rate cuts by the Federal Reserve are unnerving investors that are watching to see if this could squeeze banks’ profit margins. My colleague Rob Armstrong has more in his excellent bank earnings curtain raiser. I

in all, nearly 60 companies in the S&P 500 are expected to report results including the big banks, Netflix, Microsoft, Schlumberger and Johnson & Johnson. US data Markets have largely pencilled in a cut by the Fed at its monetary policy meeting this month, though investors continue to debate how many cuts the central bank may push through this year and how deep the cuts will be. To get a better picture of the US economy and clues to Fed policymakers’ thinking, investors will closely parse a string of economic data for updates on consumer and industrial health. Americans are expected to have tightened their purse strings a little last month with headline retail sales expected to rise 0.2 per cent month-on-month, following a stronger 0.5 per cent increase in May. Control sales, which strip out volatile items like food, energy and building materials, are expected to rise 0.3 per cent. Investors will also tune into consumer sentiment data later in the week. Updates on the industrial sector come via regional manufacturing surveys as well as industrial production data, which is expected to show factory output cooled. The economic calendar also includes updates on the housing market. UK data

The economic calendar across the pond also promises to be busy with jobs data, inflation and retail sales on the docket. As markets consider the possibility of a rate cut by the Bank of England, β€œnext week’s raft of UK data are likely to give ammunition to both sides of the argument,” noted economists at ING. While wages are expected to tick back up, they said β€œthe high street isn’t feeling the benefit of this modest improvement in real wage growth”. However, they added: β€œWith Brexit noise only likely to increase over the coming months, and a risk that trade tensions could worsen, we think the Bank of England will keep rates on hold for the rest of the year.”

EU Commission president On Tuesday the European Parliament votes on the next EU Commission president. Ursula von der Leyen has promised parliament a bigger say in Brussels’ decision-making as she seeks MEPs for the top post in Brussels for the next five years. β€œA successful vote will be largely ignored by markets, but a failure to garner enough support (which is still a possibility) could blow up the entire deal that the Council reached earlier this month, though we do think that Ms [Christine] Lagarde’s ECB nomination will be safe either way,” said strategists at TD Securities. South Africa rates On Thursday attention shifts to South Africa, where the reserve bank is widely expected to announce a 25 basis point cut to the repo rate, putting it at 6.5 per cent. Since the last SARB meeting in May, the monetary policy committee has undergone a massive transition. Strategists at TD Securities β€œthink the message will be moderately dovish, suggesting potentially more easing,” and expect β€œslightly positive” reaction in the rand as they argue markets have β€œpriced for more easing than we expect”.

AUD/USD falls to two-week low amid poor data and firmer US dollar

AUD/USD falls to its lowest level since 24 June

AUD/USD H1 09-07

The pair is hitting a fresh low of 0.6936 on the day now as the aussie is dragged lower by poorΒ business confidence dataΒ earlier and some notable strength in the greenback in the past hour of trading during the European morning.
That’s the lowest level the pair has traded since 24 June as sellers continue to stay in near-term control and are looking for a move towards 0.6900 ahead of Fed chair Powell’s testimony tomorrow and on Thursday.

(more…)

CFTC Commitments of Traders: Loonie shorts rush to the exits

Forex futures positioning data among non-commercial traders for the week ending June 25, 2019:

  • EUR short 56K vs 52KΒ short last week.Β Shorts increased by 4K
  • GBP short 59K vs 53K short last week. Shorts increased by 6K
  • JPY short 10K vs 17K short last week. Short trimmed by 7K
  • CHF short 16k vs 15k shortΒ last week. Shorts increased by 1K
  • AUD short 66k vs 65k shortΒ last week. Shorts increased by 1K
  • NZD short 24K vs 24K short last week. Shorts unchanged
  • CAD short 15K vs 38K short last week.Β  Shorts decreased by 23K
That’s the second week in a row of GBP selling as the market sours on whatever might come from the Conservative change in leadership.
There was a big flight out of euro shorts a week ago but some waded back in this week. In the yen, however, they continued to get out of shorts, even with USD/JPY rebounding (although that came later in the week).
The big move was in the Canadian dollar where all the good news on Canadian data finally sank in and the shorts got out. That shift put the net at the narrowest since late December. I expect we will see more of the same when next week’s numbers are released.

Forex futures positioning data among non-commercial traders for the week ending June 25, 2019:

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